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8-K - 8-K - GARTNER INC | it-06302017x8xk.htm |
EX-99.1 - EXHIBIT 99.1 - GARTNER INC | it-06302017xex991.htm |
0 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Second Quarter 2017 Results
August 8, 2017
1 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Statements contained in this presentation regarding the growth and prospects of the business, the Company’s projected 2017 financial results, long-
term objectives and all other statements in this presentation other than recitation of historical facts are forward looking statements (as defined in the
Private Securities Litigation Reform Act of 1995). Such forward looking statements involve known and unknown risks, uncertainties and other
factors; consequently, actual results may differ materially from those expressed or implied thereby.
Factors that could cause actual results to differ materially include, but are not limited to, the ability to achieve and effectively manage growth,
including the ability to integrate our recent CEB acquisition, other acquisitions and consummate acquisitions in the future; the ability to pay Gartner’s
debt obligations, which have increased substantially with the recent CEB acquisition; the ability to maintain and expand Gartner’s products and
services; the ability to expand or retain Gartner’s customer base; the ability to grow or sustain revenue from individual customers; the ability to attract
and retain a professional staff of research analysts and consultants upon whom Gartner is dependent; the ability to achieve continued customer
renewals and achieve new contract value, backlog and deferred revenue growth in light of competitive pressures; the ability to carry out Gartner’s
strategic initiatives and manage associated costs; the ability to successfully compete with existing competitors and potential new competitors; the
ability to enforce and protect our intellectual property rights; additional risks associated with international operations including foreign currency
fluctuations; the impact of restructuring and other charges on Gartner’s businesses and operations; general economic conditions; risks associated
with the credit worthiness and budget cuts of governments and agencies; and other risks listed from time to time in Gartner’s reports filed with the
Securities and Exchange Commission, including Gartner’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
The Company’s SEC filings can be found on Gartner’s website at investor.gartner.com and on the SEC’s website at www.sec.gov. Forward looking
statements included herein speak only as of August 8, 2017 and the Company disclaims any obligation to revise or update such statements to reflect
events or circumstances after this date or to reflect the occurrence of unanticipated events or circumstances.
In this presentation, we include “Combined” numbers that, for periods prior to our acquisition of CEB (unless expressly noted otherwise), reflect
numerical addition of the results of Gartner and CEB for each line item and do not include all the adjustments required with respect presentation of
pro forma financial information under GAAP and the rules and regulations of the SEC. Accordingly, these “Combined” numbers are non-GAAP, but
are provided because Gartner believes they are useful in comparing performance of Gartner following the CEB acquisition with performance of
Gartner and CEB independently prior to Gartner’s acquisition of CEB. These Combined numbers should be read together with the historical financial
statements of Gartner and CEB included in their respective quarterly reports on Form 10-Q and annual reports on Form 10-K, and the pro forma
financial statements included in Exhibit 99.1 to Gartner’s Current Report on Form 8-K filed with the SEC on April 6, 2017 and footnote 5 to Gartner’s
Current Report on Form 10-Q for the period ending June 30, 2017.
References in this presentation to "Traditional Gartner" operating results and business measurements refer to Gartner excluding CEB.
Disclaimer & Explanatory Note
2 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Second Quarter 2017: Highlights
Traditional Gartner Total CV Growth of 15%
y/y improvements in both client and wallet
retention metrics with strong productivity growth
Adjusted EBITDA of $185M
Free Cash Flow Conversion Rate of 126%
on a comparable basis
Adjusted Earnings Per Share of $0.88
above the high end of guidance range
CEB Total CV Growth of 1%
y/y improvement in wallet retention
Total Adjusted Revenue Growth of 9%
15% y/y FX neutral growth for traditional
Gartner business
3 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) Q2’17
Q2’16
(Combined) YOY Growth
Total Adjusted Revenue (a) $935.3 $861.1 +9%
Operating Income $(98.4) $97.9 nm
Adjusted EBITDA (a) $185.0 $182.2 +2%
Diluted Earnings Per Share $(1.03) -
Adjusted Diluted Earnings Per Share (a) $0.88 -
Operating Cash Flow $112.3 $110.8 +1%
Free Cash Flow (a) $128.9 $85.7 +50%
12 Month Rolling Free Cash Flow Conversion (b) 118% 128%
Net Debt $2,879
Net Debt/Adjusted LTM EBITDA 4.1x
Second Quarter 2017: Overview
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) On a combined basis, 12 month rolling free cash flow conversion would have been 126% through Q2’17
4 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) Q2’17
Q2’16
(Combined) YOY Change
Adjusted Research Revenue (a) $674.6 $608.9 +11%
Adjusted Gross Contribution (a) $461.4 $424.1 +9%
Adjusted Gross Contribution Margin (a) 68.4% 69.6% -130 bps
Traditional Gartner Total Contract Value $1,995 $1,754 +14%
CEB Total Contract Value (b) $578 $574 +1%
Client Retention (Traditional Gartner) 83% 83% +40 bps
Wallet Retention (Traditional Gartner) 105% 104% +70 bps
Wallet Retention (CEB) 94% 93% +80 bps
# of Client Enterprises (Traditional Gartner) 11,164 10,477 +7%
Second Quarter 2017: Research
Traditional Gartner Total FX Neutral
Contract Value growth of 15%, or
14% excluding L2 acquisition
Traditional Gartner Research
adjusted FX neutral revenue growth
of 16%
Traditional Gartner new business
growth of 14% year-on-year
Average Spend per Enterprise of
$179K, up 8% year-on-year on
an FX neutral basis
CEB Research adjusted revenues
declined 1% year-on-year
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) CEB total contract value recast at 2017 FX rates
5 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Traditional Gartner Research Highlights
Direct Quota Bearing Headcount FX Neutral Sales Productivity*
*Excluding L2, sales productivity increased 11% year over year and increased 5% on a sequential basis.
Sales productivity at reported rates was $99K, $100K, 107K and $114k for Q2’16-Q1’17, respectively
Q2’17Q2’16 Q3’16 Q1’17Q4’16
2,297 2,331 2,423
2,460 2,574
Q1’17Q4’16 Q2’17Q3’16Q2’16
$99K$97K
$114K
$105K
$116K
6 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) Q2'17
Q2'16
(Combined) YOY Growth
Adjusted Events Revenue (a) $95.2 $86.7 +10%
Adjusted Gross Contribution (a) $53.7 $50.8 +6%
Adjusted Contribution Margin (a) 56.4% 58.6% -220 bps
Number of Events (b) 26 25 -
Events Attendees 18,539 15,451 +20%
Second Quarter 2017: Events
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
b) Includes Traditional Gartner and CEB destination events
On a same-events basis, Traditional
Gartner Event business adjusted
revenues increased 13% year-on-
year in Q2 2017 on both a reported
and FX neutral basis
Traditional Gartner Events adjusted
contribution margin increased by
more than 100 bps year-on-year in
Q2 2017
Traditional Gartner Events held 25
events in Q2 2017, with 18% year-
on-year increase in same event
attendees
CEB held one destination event in
Q2 2017 (ReimagineHR)
7 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) Q2'17
Q2'16
(Combined) YOY Change
Adjusted Consulting Revenue (a) $91.7 $86.5 +6%
Adjusted Gross Contribution (a) $31.4 $28.3 +11%
Adjusted Contribution Margin (a) 34.3% 32.7% +160 bps
Quarterly Utilization Rate 65% 69% -360 bps
Billable Headcount 667 626 +7%
Avg. Annualized Rev. per Billable Headcount 378 408 -7%
Second Quarter 2017: Consulting
128125123115112
Q4'16Q3'16
+14%
Q2’17Q1'17Q2'16
9189899093
Q4’16Q3’16
-2%
Q2’17Q1’17Q2’16
Managing Partners Consulting Backlog* ($M)
* No longer includes backlog associated with Strategic Advisory Services (SAS)
8% FX neutral year-on-year revenue
growth in Q2 2017 driven by strong
performance of contract optimization
business
Continued investment in Managing
Partners, up 14% compared to
Q2 2016
Backlog (excluding SAS backlog)
decreased by 1% year-on-year on
an FX-neutral basis in Q2 2017
Backlog represents approximately
4 months of forward coverage, in
line with operational target
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
8 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions (unless stated) Q2'17
Q2'16
(Combined)
YOY Growth
(Reported)
Adjusted Talent Assessment & Other Revenue (a) $73.9 $79.0 -6%
Adjusted Gross Contribution (a) $44.1 $43.9 0%
Adjusted Contribution Margin (a) 59.7% 55.6% +410 bps
Second Quarter 2017: Talent Assessment & Other
Talent Assessment & Other includes
CEB's previously disclosed Talent
Assessment business as well as
certain CEB non-subscription based
talent products and services
Improved momentum during the
quarter, ending Q2 2017 with higher
year-on-year bookings
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
9 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Second Quarter 2017: Adjusted Earnings Per Share(a)
In $ thousands, except per share amounts
Three Months Ended
June 30, 2017
Net Income $(92,281)
Acquisition adjustments, net of tax effect:
Amortization of acquired intangibles (b) $65,406
Amortization of pre-acquisition deferred revenues (c) $91,542
Acquisition and integration charges and other nonrecurring items (d) $100,721
Tax impact of adjustments $(85,951)
Adjusted net income $79,437
Adjusted diluted earnings per share (e): $0.88
Weighted average shares outstanding:
Diluted (in millions) 90.6
a) Adjusted earnings per share represents GAAP diluted earnings per share adjusted for the per share impact of certain items directly-related to acquisitions and other items
b) Consists of non-cash amortization charges from acquired intangibles
c) Consists of amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the
remaining period of the underlying revenue contract
d) The effective tax rate was 33% for the three months ended June 30, 2017
e) The adjusted diluted EPS is calculated based on 90.6 million shares for the three months ended June 30, 2017, as reported
10 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
In $ Millions Q2'17
Q2'16
(Combined)
YOY Change
(Reported)
Adjusted EBITDA $185.0 $182.2 +2%
Operating Cash Flow $112.3 $110.8 +1%
- Capital Expenditures $(30.9) $(25.8)
+ Cash Acquisition and
Integration Payments
$47.5 $0.7
= Free Cash Flow $128.9 $85.7 +50%
Free Cash Flow Conversion* 126% 128%
Second Quarter 2017: Cash Flow Highlights
* Last 12 months combined FCF of $419.9M divided by last 12 months combined adjusted net income of $332.6M
On a comparable basis, Q2 2017
operating cash flow growth was 1%
Operating cash flow was significantly
impacted by higher year-on-year
cash acquisition and integration
payments
On a comparable basis, free cash
flow increased by 50% year-on-year
driven by the strong performance of
traditional Gartner research in H1
2017
11 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
$835 $745 $703 $1,658
$3,468
$(445) $(466) $(474)
$(1,228)
$(589)
2Q16 3Q16 4Q16 1Q17 2Q17
Total Debt Cash
Net Debt ($M)
0.9x
0.7x
0.5x
0.9x
4.1x
2Q16 3Q16 4Q16 1Q17 2Q17
Net Debt* / EBITDA Ratio
Second Quarter 2017: Balance Sheet and Capital Structure
$390 $279 $229
$430
$2,879
*Net Debt in Leverage Ratio calculated using LTM of Adjusted EBITDA of $694.4M of Adjusted EBITDA
Revolver capacity was $675M as of the end of 2Q17
More than 60% of gross debt has fixed interest rates
12 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Fiscal Year 2017
Outlook
13 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Updated 2017 Guidance
$ In millions, except per share amounts Updated 2017 Guidance Range*
Research revenue $2,421 - $2,470
Consulting revenue $319 - $334
Events revenue $321 - $340
Talent Assessment & Other $164 - $176
Total Revenue (GAAP) $3,225 - $3,320
Deferred Revenue Fair Value Adjustment $203 - $203
Total Adjusted Revenue $3,428 - $3,523
Operating (Loss) Income $(6) - $29
Adjusted EBITDA $685 - $720
Diluted Earnings Per Share (GAAP) ($1.00) - ($0.71)
Adjusted Diluted Earnings Per Share $3.32 - $3.49
Fully Diluted Number of Shares 89.5 - 90.5
Operating Cash Flow $315 - $335
Acquisition and Integration Payments $115 - $125
Capital Expenditures ($95) - ($105)
Free Cash Flow $335 - $355
*2017 guidance is based on 12 months of traditional Gartner results plus 9 months of CEB results
14 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
GAAP to Adjusted Revenue Guidance Reconciliation
$ In millions
2017 GAAP Revenue
Guidance
Deferred Revenue Fair
Value Adjustment
2017 Adjusted Revenue
Guidance
Research revenue $2,421 - $2,470 $145 - $145 $2,567 - $2,616
Consulting revenue $319 - $334 - $319 - $334
Events revenue $321 - $340 $7 - $7 $328 - $347
Talent Assessment & Other $164 - $176 $51 - $51 $214 - $226
Total Revenue $3,225 - $3,320 $203 - $203 $3,428 - $3,523
a) Please refer to appendix slides for definition of these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures
15 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
$0.31
$(1.59)
$0.94
$1.49
Reconciliation of 2017 Adjusted to GAAP EPS Outlook
~$(1.26)
~$(1.47)
~$(1.53)
$3.32 – $3.49
**Adjusting items calculated at the midpoint of guidance range
Amortization of
Pre-Acquisition
Deferred Revenue
Adjusted EPS
Guidance
Range
Amortization
of Acquired
Intangibles
Acquisition and
Integration and Other
Non-Recurring Items
$(1.00) – $(0.71)
GAAP EPS
Guidance Range
16 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Appendix
17 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Additional 2017 Guidance Items
$ In millions, unless stated
Stock-based compensation $67 - $68
Depreciation $69 - $70
Amortization of intangible assets $202
Effective tax rate (GAAP) 33 - 34%
Effective tax rate (adjusted) 32 - 33%
18 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Operating Income to Adjusted EBITDA(a) Reconciliation
In $ thousands
Q2’17
Q2’16
(Combined)
Operating income ($98,388) $97,877
Normalizing adjustments:
Stock-based compensation expense (b) $16,557 $16,118
Depreciation, accretion, and amortization (c) $83,585 $41,523
Amortization of pre-acquisition deferred revenues (d) $91,542 $8,544
Acquisition and integration charges and other nonrecurring items (e) $91,712 $11,695
Other charges (f) $6,460
Adjusted EBITDA $185,008 $182,217
a) Adjusted EBITDA is based on GAAP operating income adjusted for certain normalizing adjustments
b) Consists of charges for stock-based compensation awards
c) Includes depreciation expense, accretion on excess facilities accruals, and amortization of intangibles. The depreciation and amortization amounts do not include any fair value adjustments as a result of the acquisition
d) Consists of amortization of non-cash fair value adjustments on pre-acquisition deferred revenues. The majority of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract
e) Consists of incremental and directly-related charges related to acquisitions and other non-recurring items
f) Primarily consists of restructuring costs, real estate and business transformation costs, equity investment losses and non-operating foreign currency impact related to acquired CEB business
19 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Recast CEB Contract Value* & Wallet Retention
Wallet
Retention
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
94% 93% 93% 90% 92% 94%
$573 $578$574
$549
$578$569
Contract Value ($ in Millions)
* CEB total contract value recast at 2017 FX rates
20 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Adjusted Segments
Three Months Ended
June 30, 2016
Combined
In $ thousands
Adjusted
Revenue Direct Expense
Adjusted Gross
Contribution
Adjusted
Contribution
Margin
Adjusted
EBITDA
Research $608,911 $184,809 $424,102 70%
Consulting $86,548 $58,207 $28,341 33%
Events $86,720 $35,891 $50,829 59%
Talent Assessment & Other $78,965 $35,089 $43,876 56%
TOTAL $861,144 $313,996 $547,148 64% $182,217
In $ thousands
Adjusted
Revenue Direct Expense
Adjusted Gross
Contribution
Adjusted
Contribution
Margin
Adjusted
EBITDA
Research $674,568 $213,161 $461,406 68%
Consulting $91,693 $60,260 $31,433 34%
Events $95,152 $41,470 $53,683 56%
Talent Assessment & Other $73,860 $29,804 $44,056 60%
TOTAL $935,273 $344,695 $590,578 63% $185,008
Three Months Ended
June 30, 2017
As Reported
21 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Reconciliation Tables
22 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Reconciliation Tables
23 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Reconciliation of GAAP Operating Income to Adjusted
EBITDA(a)
24 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.
Definitions
Adjusted Revenue: Represents GAAP revenue plus non-cash fair value adjustments on pre-acquisition deferred revenues. The majority
of the pre-acquisition deferred revenue is recognized ratably over the remaining period of the underlying revenue contract.
Adjusted EBITDA: Represents GAAP operating (loss) income excluding stock-based compensation expense; depreciation,
amortization, and accretion on obligations related to excess facilities; amortization of pre-acquisition deferred revenues; acquisition and
integration charges; and other non-recurring items.
Adjusted Net Income: Represents GAAP net (loss) income adjusted for the impact of certain items directly related to acquisitions and
other non-recurring items. These adjustments include the amortization of identifiable intangibles from acquisitions; incremental and
directly-related acquisition and integration charges related to the achievement of certain performance targets and employment
conditions, as well as legal, consulting, severance, and other costs; fair value adjustments on pre-acquisition deferred revenues; and
other non-recurring items.
Adjusted EPS: Represents Adjusted Net Income divided by the number of Non-GAAP diluted shares.
Free Cash Flow: Represents GAAP cash provided by operating activities plus cash acquisition and integration payments less payments
for capital expenditures.
Adjusted Gross Contribution: Adjusted Revenue less Direct Expenses.
Adjusted Gross Margin: Adjusted Gross Contribution divided by Adjusted Revenue.
25 CONFIDENTIAL AND PROPRIETARY I © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.